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What the future of the auto industry will look like

Surging demand for cars in rapidly growing nations will mean a robust car industry in 20 years. The US will have a piece of it – though smaller than today – and the models it turns out will be much greener as the iconic industry reinvents itself.

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“What we are seeing today is a major shift toward electric-drive vehicles,” says Dan Sperling, director of the Institute of Transportation Studies at the University of California, Davis.

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Well, maybe. Other experts point out that Obama’s goal of 1 million hybrids is quite modest, given that even in this constrained year US consumers will drive away 9 million new vehicles.

The problems are habits, and costs. Consumers have been driving gas cars – and big ones, in the US – for a century. Most of them are not going to pay more to try something new.

And electric-drive cars are more expensive, at least for now. Batteries are costly, for one thing. Chevy’s Volt will probably have a sticker price near $40,000. Unless government policy offsets this green price penalty, hybrids and their ilk could remain a niche product in the short to medium term.

“In five years, if fuel prices don’t do anything crazy, the product mix will look pretty much like it does today,” says Daniel Snow, an assistant professor at Harvard Business School who studies the application of new technology.

Gas prices might do something crazy, of course. They’ve roller-coastered quite a bit recently. At last summer’s $4 per gallon, consumers fled big vehicles. Hybrids were hot – but so were four-cylinder economy cars. And, technically speaking, conventional gas autos still have lots of leeway for mileage improvement. Direct fuel injection, use of lighter weight materials, and other techniques could improve efficiency by 20 percent or more.

“There isn’t any part of the vehicle that will remain untouched by the search for better mileage,” says Paul Lacy, manager of technical research, Global Automotive Group, at IHS Global Insight.

In the longer run, the power source of a vehicle may depend on its intended use. Runabout cars for shopping and school drop-offs could be straight electric. Commuter vehicles that take longer trips downtown might need the extended-range capability of a hybrid. Long-distance cruisers meant to travel at high speeds from, say, Tucson, Ariz., to Tucumcari, N.M., might operate best with advanced diesel-fueled spark-ignition engines.

Cars, in other words, will still be around – for a long time. That is easy to forget now, particularly in the US, as GM stumbles and the price of gas heads for its next unpredictable destination. Mass transit is great, but the auto is one of history’s revolutionary technologies. People everywhere want the freedom inherent in a personal set of wheels.

Given the number of people in the developing world who can now afford a basic auto, or will soon be able to, the global vehicle industry may not yet have seen its period of greatest growth. “The motor vehicle manufacturing industry, which is 100 years old, is only now emerging from its infancy,” conclude Ronald Haddock and John Jullens, analysts at Booz & Company, in a recent report.

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